Be Prepared: Have a Graduation Emergency Fund
21. February 2011
The transition from college to the real world is a big adjustment. Gone are the days of studying for tests, writing papers, and registering for classes. After graduation, it’s about getting a job and keeping yourself financially afloat. The problem is that for many graduates, the job market isn’t looking so hot. Many college grads can go for months without getting a job offer, and most of them don’t have a backup plan to pay their bills while they are waiting to land jobs. So how can soon-to-be college graduates make sure they are financially prepared for life after graduation? If you are in your junior or senior year of college, here are three key steps to follow to ensure your post-graduation financial survival:
Figure Out Your Current Budget Spend some time looking through your bank account history. Identify every source of income you currently have. This can include (but is not limited to):
• Job income
• Parental financial assistance
• Financial aid • Scholarships
Then identify every expense you have. Expenses can include (but are not limited to):
Add up your income sources. Then add up your expenses. Does your income exceed your expenses? If so, you are living within your means and budgeting effectively. If not, it’s time to seriously cut back on your expenses or find an additional source of income (for example a part time job) so you aren’t totally in debt when you graduate.
With a little thoughtful financial planning your money can go a long way towards meeting your goals. Who knows…you may even be able to cut back hours at your campus job, graduate early or even take a trip this summer! Either way, living frugally as a college student will help you hit the ground running financially when you take that first job after graduation, setting you up for long-term financial success.
Identify Your Post-Graduation Expenses Take a few minutes to think about what your life will look like after graduation and the expenses you will incur. Things to consider include:
• Do you want to have your own apartment or will you move back in with your parents?
• How frequently do you see yourself going out?
• Have your parents been helping you out with expenses such as car insurance or health insurance and will they continue to help you with those expenses?
• How much do you think you will spend on food each week or month?
• Will you have student loans to pay off? When will you have to start paying them?
Write down every expense you will have after graduation and do some research to figure out how much each expense will cost you per month. This will involve some guesstimating, and it would be advisable to guesstimate high so that you aren’t caught off guard if your expenses end up costing you more than you anticipated.
Build An Emergency Fund What is an emergency fund? In simple terms, it is a rainy-day fund to get you through a financial rough spot. Given the fact that most college grads will go through a financial rough spot after graduation, an emergency fund is vital to post-graduation survival.
Ideally, you want your emergency fund to last you three to six months. So, say for example you know your monthly expenses after graduation will add up to roughly $1,500. You will want to try to build up an emergency fund of at least $4,500 by the time you graduate. But how can you do this?
Go back through your current budget and identify expenses that seem high. For example, let’s say you spend $150 a week on food. Think about ways to cut down on your food expenses. You could try buying in bulk, eating out less often, learning to cook, or using coupons. If you could reduce your food expenses by 50%, you could save at least $2,400 per school year. By finding other ways to cut back on your current expenses or figuring out how to bring in a little extra income during the school year, you could have your emergency fund ready to go within a year!
By following these three simple steps, you can make sure you will be able to support yourself financially until you get your first job. Making the transition from college to the real world can be tough, but by being financially prepared, it can be a bit less intimidating.
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